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Trends on Human Capital Disclosure

As of November 9, 2020, the Securities Exchange Commission (SEC) mandated rules that revolutionized the requirements of Regulation S-K. According to the new mandates, companies must expand the scope of human capital management disclosure using a principles-based approach. With up to 85% of a company’s costs tied up in people, stakeholders want to understand how management sees the company’s strategic and operational requirements – from the operating model to talent planning, learning and innovation, employee experience, and work environment.

These amendments have been designed to increase transparency for investors about a company’s financial position, the nature of their workforce, how they conduct their business, and if they have the requisite human resources to manage future challenges.

How have corporates reacted to this revised rule in their SEC disclosures? Research reports from experts reveal the early disclosure trends:

Long but vague

One noteworthy examination of early trends in human capital disclosure is that these disclosures do not offer meaningful insights. The disclosures often lack quantitative metrics and use very generic language.

Aspirational than informational

SEC’s new rule is generic, giving companies the opportunity to be non-descriptive. In a large sample of human capital disclosures in 427 Form 10-K statements, it was found that there was no factual data and retrospective information, only generalized “aspirational, forward-looking goals.”

Recommendations

Effective control mechanisms and procedures should support the new human capital disclosures. When included in the annual report, they will come under the ambit of the company’s disclosure controls and procedures (DCP). Still, when included in other filings, such as registration statements, separate controls may be needed.

As your company considers the appropriate controls over these new disclosures, questions could include:

  • What is the quality of the data underlying the disclosures?
  • What governance exists over this data? Does it flow through the disclosure committee, board of directors, and/or audit committee?
  • Based on the type of filing, are the disclosures subject to DCP, or are there other processes and controls that support the reliability of the information reported?
  • Do we have a policy on scoping, measuring, and presenting the information to aid consistency between periods?
  • Will consumers of the human capital information be confident in its accuracy and completeness?
  • Do we have a process for determining when changes to measures are needed and disclosed?

You also have some other more practical questions that you’d like addressed, such as:

  • What metrics do we need to report?
  • When do we need to report?
  • What’s the best way to capture our human capital data moving forward?
  • Is there a tool or software I can use to support our human capital disclosures?

For those who already have a strong people analytics strategy in place, sourcing data to meet the requirements will be easier than for others, who will need to act fast to put appropriate measures and processes in place. For all your questions and queries with regards to human capital disclosures, schedule a discussion with our XBRL expert. Feel free to drop a line at enquiry@datatracks.com.